SCOREBOARD: Stinging sell-off

It was a brutal night for offshore markets as commodity prices fell and stocks sold off in an apparent overreaction to Chinese data.

It was a mood of absolute gloom for markets last night. From what I could see there was no overarching rhyme nor reason just panic, though sentiment was shaken by a series of explosions that went off near the finish line of the Boston marathon. Gold fell $149 or just under 10 per cent in the session to sit at $1352 now. Gold has fallen by about 18 per cent or $300 so far this year, most of that over the last three days.

Indeed it’s the biggest fall over that period since gold started trading in 1974. With that fall though, the precious metal now sits at its lowest point since February 2011. Big moves, but they weren’t just confined to gold. Silver fell almost 14 per cent overnight, copper was down 2.4 per cent and crude fell 4.4 per cent ($87.34). Naturally with commodities collapsing, the Australian dollar fell over a big figure (about 140 pips) from 1630 AEDT, and sits at 1.0305.

So what gives? Well notionally the catalyst for all of this - as reported in the press - was those China numbers yesterday. But if that’s the case, it’s a pretty flimsy excuse. For a start no one believes the Chinese GDP figures. Or so I thought? Anyone, anyone? That’s what we get told whenever they are strong and I’d note the line of economists who said just that after the trade figures recently. Anyway the silence is deafening now. Secondly, the numbers didn’t even show the economy slowing. Growth at 7.7 per cent is not materially different from the 7.9 per cent recorded last quarter - that is growth was basically unchanged and not to different from expectations (it rarely if ever is).

So this is kind of a Clayton’s excuse - fodder for the masses. Fact is the pressure to sell gold had been building for a while - press stories had been building, analysts were lining up (Goldman’s being one of the last), rumours or fact of Fed and other central bank selling. The same pressure had been on stocks as well, everyone talking the bull-run down - something was bound to give given the hard run so far and I think it just has. When you consider just how long the market was gold, more than a few traders would have been caught out by this and the capitulation reflects that, traders covering their longs.

As for stocks, they were weaker, in part on the commodity rout and certainly the energy and basic materials sectors were the key underperformers, down 4 per cent or more - although all sectors were hit, and hard. The major benchmarks themselves were off 2.3 per cent on the S&P (1552), which is the worst session in about four months. The Dow then fell 265 points (14,599), which is the worst session in five months and then the Nasdaq fell 2.4 per cent (3216). Stocks in Europe outperformed for a change, falling around the 0.5 per cent on the Dax, CaC and FTSE.

For price action elsewhere, there wasn’t much. The euro fell about 44 pips to 1.3034, the British pound was down about the same to 1.5278, while in a bigger move, the yen is at 96.73 from 98.09. Action in the biggest bubble - government bonds was mute surprisingly. Keep well away from government bonds, central banks are the largest players here and you can be sure that insiders will know of any change to government policy well before the public does - as we saw with the leaks of the FOMC minutes. Anyway, treasuries did nought, yields down four basis points here or there on the 10-year (1.685 per cent), about 2 bps on the 5-year (0.67 per cent), while the 2-year was off a bps to 0.22 per cent.

Not a lot in the way of other data or news, or rather there was data, it was just minor. So in the US, the NAHB housing index fell to 42 from 44 (trend still up but the index is still a bit below average (46). The we saw the Empire State manufacturing index fall to 3 in April from 9.2

Today’s session no doubt will be atrocious, and the SPI suggests we can expect falls around 1.2 per cent. In terms of news and dataflow, we get car sales for Australia today and the Reserve Bank’s minutes. Outside of that, we see UK producer and consumer prices (inflation still well above target), eurozone inflation, (elevated and just below target) and US consumer inflation - stable at an elevated rate. Other than US inflation it’s also worth looking out for US industrial production and housing starts.

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